Pair of court rulings split on Obamacare subsidies for those who bought insurance on HealthCare.gov

A federal appeals court Tuesday dealt a stunning blow to the Affordable Care Act, ruling that the billions of dollars in government subsidies that have enabled millions of Americans to buy health insurance on the federal online marketplace at HealthCare.gov are illegal.

But while the divided court panel in Washington was throwing out the Obamacare subsidies at HealthCare.gov, in Richmond, Virginia, another appeals court panel was unanimously reaching the opposite conclusion, ruling that the Internal Revenue Service correctly interpreted the will of Congress when it issued regulations allowing consumers in all 50 states to purchase subsidized coverage.

The White House immediately declared that policyholders will keep getting financial aid as the administration sorts out the legal implications.

Spokesman Josh Earnest said the adverse decision in Washington would have "no practical impact" on tax credits as the case works its way through the courts.

New Jersey is among 36 states that opted to have their residents sign up for Obamacare on HealthCare.gov instead of creating their own state-run exchange. According to the government, more than 162,000 New Jerseyans bought policies there for 2014, the first year of the ACA — and the majority received subsidies to make their coverage affordable.

“New Jersey consumers, including those receiving health insurance subsidies, should not anticipate any immediate changes to their health insurance coverage," said Ward Sanders, president of the New Jersey Association of Health Plans, the trade group for the state's health insurers.

Sanders pointed out the conflicting appellate court rulings out of D.C. and Richmond and said: "The federal government has a number of procedural options for how to react to the decisions, and this issue could take months or longer to be fully resolved. In the meantime, New Jersey’s health plans are focused on ensuring stability, affordability, and accessibility for consumers.”

These widely divergent federal court decisions bolster the argument of many legal experts that this issue will have to be decided by the U.S. Supreme Court.

Joel Cantor, director of the Rutgers Center for State Health Policy, told NJBIZ: “If upheld by the full appeals court and, ultimately, by the Supreme Court, this would make health insurance unaffordable for thousands of New Jersey residents. As of the close of open enrollment this year, there were about 193,000 New Jersey residents determined eligible for a health insurance subsidy through HealthCare.gov. Those folks would lose their assistance and many would return to the ranks of the uninsured.

“At the same time, the federal government is scaling back subsidies for hospital uncompensated care payments. If people lose coverage and hospitals lose charity care funding, we will see many more hospitals in financial distress and probably an acceleration in hospital closures. Ending the health insurance subsidies would be very disruptive to individuals and families who benefit and health care providers who serve them.”

The federal exchange, HealthCare.gov, serves residents of the 36 states that did not create their own health insurance marketplace. About 4.7 million people, or 86 percent of all HealthCare.gov enrollees, qualified for a subsidy to offset the cost of their coverage this year because they had low or moderate incomes. Subsidies for more than 2 million people who bought coverage on state exchanges would not be affected by Tuesday's ruling if it is upheld.

Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute, predicted the U.S. Supreme Court will ultimately decide this issue. And, she said, “I think they should overturn this decision.” She said the courts have typically given the president discretion to implement federal laws and “I think it is a reasonable interpretation of the law (the ACA) that the subsidies apply to the federal exchange.”

Seton Hall Law School Professor John Jacobi said the Obama administration will seek a stay of the D.C. ruling, and he said a stay is likely to be granted, with the U.S. Supreme Court taking up the case some time next year.

Asked if the legal turmoil might impact consumers who are considering buying coverage on HealthCare.gov, Jacobi said: "There is so much uncertainly out there already, and I think that what consumers have shown is that they are interested in being insured. Once there is a stay of this opinion I think it will be clear that people can apply for and receive subsidies. I don't think it's likely that consumers will fear that they will suddenly be on the hook if the whole system is upset. I don't think that's likely to happen."

Ray Castro, senior policy analyst for New Jersey Policy Perspective, said: “Unfortunately, this is another example of how the lower courts are basing their decisions on politics rather than the law when it concerns the Affordable Care Act. If Congress' intent was to make it impossible for the federal government to run the exchanges, it would have made that clear in the legislation.”

He said that, unless the decision is overruled, “This could become a major issue in New Jersey because of the governor's steadfast opposition to administer the exchange. It is critical that the federal government continue to administer the exchange here because without the exchange it would mean that most of the160,000 New Jerseyans who obtained insurance would lose their premium subsidies, and therefore their insurance, even if they're in the middle of medical treatment. It could also be disastrous for hospitals in New Jersey because the federal government will be reducing charity care funds in anticipation of more individuals becoming insured.”